Jubilant FoodWorks shares jump 3% after firm’s China foray; should you buy or sell stock?

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Updated: March 14, 2019 5:45:10 PM

Shares of Jubilant FoodWorks, exclusive India franchisee for Domino’s Pizza across India, surged in trade after the company announced Wednesday that it has entered into Chinese cuisine market with its first own brand ‘Hong’s Kitchen.’ Jubilant FoodWorks shares rallied more than 3% to hit the day’s high at Rs 1369.90. 

Jubilant Foodworks shares rally 3% on block deal and its entry into Chinese cuisine segment

Shares of Jubilant FoodWorks, exclusive India franchisee for Domino’s Pizza across India, surged in trade after the company announced Wednesday that it has entered into Chinese cuisine market with its first own brand ‘Hong’s Kitchen.’ Jubilant FoodWorks shares rallied more than 3% to hit the day’s high at Rs 1369.90. 

Taking stock of the development, HDFC Securities said that the brand will address the vast gap between street vendors and fine dining. “Although there are limited details available (like store opening guidance and store economics), we are bullish as it expands JFL’s addressable opportunity by >2x,” the brokerage firm noted. 

According to HDFC Securities, the new venture will give JFL an entry in a large category; and harness untapped opportunity in ‘fast casual’ Chinese market. Further, HDFC Securities noted that Chinese food commands a high margin profile as it is difficult to replicate at home. This foray also provides scope to leverage back-end infrastructure (like Commissary, mgt. expertise, technology etc).

While giving its outlook on Jublilant FoodWorks, HDFC Securities said it believes that the company has enough levers to sustain healthy performance in FY20/21E given (1) Return to store expansion (focus on splitting stores in metros and expansion in smaller towns), (2) Filling gaps in the Menu, (3) Focus on new customer acquisition and driving frequency, (4) Benefits from sporting events (Cricket World Cup 2019 and reschedule in IPL will support 1HCY19 performance), (5) Turnaround of Dunkin’ and Launch of Hong’s Kitchen.

“We model 18/11/10% SSG growth during FY19E/FY20E/FY21E. We value JFL at 46x on Mar-21 EPS, arriving at a TP of Rs 1,750. Reiterate BUY,” brokerage house HDFC Securities noted. Meanwhile, a CNBC-TV18 report said about 40 lakh shares (representing a 3 percent of total paid-up equity) exchanged hands at a price of Rs 1,312.40 in early trade.

(Please consult your financial advisor before making any investment related decision)

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